London’s Financial Sector Can Accept Brexit

Tuesday, March 15, 2016 - 02:00

London’s Financial Sector Can Accept Brexit

• International
  

A British exit from the European Union may not be an immediate shock to London’s standing as a global financial hub.
London, after all, just got a vote of confidence from Europe’s biggest exchange operators, who are considering a 20 billion pound ($28 billion) tie-up that would place its holding company in London.
Deutsche Boerse AG and London Stock Exchange Group Plc have said the merger makes sense whether or not Britain votes for an EU “Brexit”.
Stuart Gulliver, chief executive officer of HSBC Holdings Plc, said a June 23 vote by Britain to leave the EU would affect a “very small percentage” of the bank’s UK employees and wouldn’t force the bank to move its headquarters from London, Bloomberg reported.
London’s position as a financial capital was bolstered for decades by UK Prime Minister Margaret Thatcher’s so-called Big Bang in 1986 that deregulated financial markets and attracted capital and talent to London. While the city’s power won’t suddenly be diminished, much may hinge on the length and outcome of negotiations with the EU over exit terms and whether UK firms have a “passport” to access continental markets.
For markets less affected by rules coming out of Brussels, such as foreign exchange, London would likely retain its power.
More than $1 trillion trade there every day, almost half the global total.
“London is absolutely the dominant center” of currency trading, Gulliver said. “That would not change.”
Part of London’s advantage in currencies comes from its location: The city’s time zone makes it a logical middle ground between markets in Asia and the US.
In foreign exchange, there are no benefits for London should there be a Brexit, according to Kit Juckes, global strategist at Societe Generale SA.
The question is whether the “downside is nothing, a little or significant”, he said.
The UK has been the main center for trading over-the-counter interest-rate swaps since the Bank for International Settlements began measuring the market two decades ago. London is home not only to buyers and sellers in the bilateral market, but also to the largest inter-dealer brokers, clearinghouses and law firms that have grown up to support the industry, making it difficult for the market to easily move.
“I’m not sure you’d get a huge shift in the swap market,” said Peter Cox, a consultant at Bourse Consult and a former executive at OM London Exchange. “You see London arranging a lot of swaps that are outside Europe as well as a lot that are inside Europe and it’s doing that with relative ease.”
 
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